By Omoh Gabriel
Investors in stocks the United States of America have lost a total of $8.3trillion since the financial crisis that is rocking the global market started data released by Wall Street has revealed. The US stock market lost $2.3 trillion in one week and $900billion on Thursday alone. The huge loss on Thursday plunge the global market into chaos and fear leading to massive sell out at Wall Street. The massive sell out has lead to panic in Europe and Asia where the stock markets lost huge value. The continued free fall of prices of shares in stock markets around the world has created fear of a deep global recession . As a result the President of the United States of America George W Bush is meeting with the Group of 7 industrialised countries, Global financial leaders, IMF and the World Bank on Saturday to discuss the way forward. Leaders are blaming the US for the financial mess.
The financial market in the US and Europe is now driven by fear and uncertainty as investors have lost confidence in Wall Street leadership ability to create wealth and value. Here in the US all the leading media are focussed on the financial meltdown and concern for the economy than the presidential election. Already the US stock market has lost 40 per cent of its value. Banks are not giving credit and housing value are going down the more. As banks and credit agencies are not lending, consumer spending is very low which may lead to job loses. The state of Viginia has announced that it is laying off 570 state workers due to budget constrains. In some Hotels cash payment is preferred and welcomed unlike in the past when credit card was the vouge.
At the Quincy Hotel a walking distance from the IMF/World Bank Headquarters a delegate to the IMF/World Bank 2008 Annual meetings got a shocker from an Hotel attendant when his credit card was refused and asked to make some payment in cash. He had only 150 euros on him. He pleaded to be accommodated until his colleague arrives from Europe with cash. Baffled by the enormity of the credit crunch the US government is considering buying ownership in banks to encourage them to start lending again. People here in the US are concerned about the value of the stock holdings, safety of their savings, retirement benefit pension and cash deposit in banks.
The federal government must be concerned in that the trend is pointing to global recession in which the prices of crude will fall and it is already being predicted that it will drop to $50 per barrel. This will bring about the situation in the early 1980s when the prices of crude oil fell to $10 and it was difficult for government to pay civil servants and essential commodities were hard to find.
Secondly the safety of the country’s foreign reserve in foreign banks that are now facing should financial stress should concern the authorities. Should any of the bank fails it will lead to a loss of the portion of the foreign reserve in their vaults. Also the entire Nigeria banking system depended of expertise from these foreign banks that have shown they are not as competent as they would make us believe. Many Nigeria bankers receive their tutorials from experts and banking practices enunciated from Europe and America financial system. If their system has run into problem then Nigeria should not expect anything less.
The International Monetary Fund on Thursday at the ongoing IMF/World Bank annual meetings warned that the world economy is experiencing a major down turn in the facew of the most dangerous financial shock in mature markets since the 1930s, and called for strong and cordinated actions to avoid worse-case scenerios. The IMF’s latest world economic outlook projects global growth to slow down substantially in the later part of 2008 before beginning a modest recovery in the second half of 2009.
According to the IMF growth in the advanced countries will be close to zero until at least the middle of 2009, while growth in emerging and developing countries will slow to substantially lower rates than in recent past. The World Economic Outlook projects global growth at around 3 per cent in 2009.
The report said “ The world economy has entered a major downturn after being hit by two very large shocks: a surge in oil and commodity prices and an expanding financial crisis. The financial crisis has clearly gotten worse, and no country will be fully immune from the effects on the real economy. It is too late to avoid a slow down, but strong and coordinated policies can avoid even the worse scenerios” the report said
Meanwhile the International Monetary Fund (IMF) has activated an emergency finance mechanism to help countries hit by the financial crisis. IMF chief Dominique Strauss-Kahn said the lending procedure would allow the IMF to react quickly to support countries facing funding problems.
The scheme, which was used during the Asian financial crisis in 1997, will help speed up approval of loans. The news came as US stocks sank to a five-year low.
On Wall Street, the Dow Jones ended down 7.3% – tumbling below 9,000 points for the first time since August 2003 and falling for a seventh consecutive session. Mr Strauss-Kahn said the world was “on the cusp of recession”, but could still recover.
The IMF has already sent a mission to Iceland, where the government has taken control of its three biggest banks.
Speaking ahead of meetings of the IMF and World Bank, Mr Strauss-Kahn urged countries to act “quickly, forcefully, and co-operatively” to solve the global economic problems.
A day after seven central banks around the world cut interest rates in an effort to calm financial markets, the IMF chief said further co-ordinated action was necessary. “All kinds of policy co-operation are to be commended,” he said.
But he issued a stark warning against countries acting unilaterally to fight the crisis, referring to recent isolated moves by certain European Union member countries.
“There is no domestic solution to a crisis like this one.” Finance ministers from the G7 group of wealthy nations are also meeting in Washington this weekend.
It has been yet another turbulent week on world financial markets. Thursday’s key developments include:
* The Dutch government is preparing 20bn euros ($27.4bn) in funding to support financial institutions in the Netherlands during credit crisis.
* US Treasury Secretary Henry Paulson is considering capital injections into troubled US banks, a White House spokeswoman said
* The UK has condemned Iceland’s handling of the collapse of its banks and its failure to guarantee British savers’ deposits
* The oil producers cartel Opec will hold an emergency meeting in Vienna on 18 November to discuss the impact of the financial crisis on oil prices, which fell below $87 a barrel
Mr Strauss-Kahn said the events of the past few weeks were beginning to take their toll on emerging economies as credit lines were cut and as trade was being hit by slowing demand in Western economies.
He said the IMF was ready to assist any country in need of funding through its emergency aid mechanism, set up in 1995 to help Mexico stabilise its financial system after a crisis of confidence that led to sharp declines in the country’s currency.
The Philippines, Thailand, Korea and Indonesia also drew on the mechanism to access billions of dollars of loans after the eruption of the Asian financial crisis in 1997.
Separately, World Bank president Robert Zoellick warned against letting the “financial crisis become a human crisis”.
He said a drop in exports combined with higher credit costs will trigger business failures in the poorest economies and, in some cases, “bankrupt” countries.
Acknowledging there was no “silver bullet” to fix the global financial difficulties, he said it was up to the Group of Seven industrialised countries to work together to come up with a plan to solve it. “Countries will take different actions, customised to their circumstances, yet the actions need to target the same basic problems,” he said.
